Larsen Plans India’s First Inflation-Linked Bonds by a Company

Larsen & Toubro Ltd. (LT), India’s biggest
engineering company, plans to sell the nation’s first corporate
inflation-linked bonds to lure investors in a country where
price increases have averaged 7.2 percent in the past year.

Larsen & Toubro, based in Mumbai, will raise 1 billion
rupees ($18.2 million) selling 10-year notes, according to a
person familiar with the matter. The bonds will offer a yield of
165 basis points higher than the inflation rate based on monthly
wholesale prices, the person said asking not to be identified
because the terms aren’t set.

The builder of roads, airports and homes joins the
government in planning to sell similar securities. Prime
Minister Manmohan Singh’s administration will offer as much as
150 billion rupees of the notes starting June, according to a
Finance Ministry statement. The inflation rate, which was at 10
percent in September 2011, last month increased at the slowest
pace since November 2009.

“There is still uncertainty on inflation,” Mahendra Jajoo, Mumbai-based chief investment officer at Pramerica Asset
Management Pvt., said in a phone interview today. “If an
investor’s objective is to hedge against inflation, such an
instruments serves that purpose.”

Yields on Larsen’s 11.45 percent rupee-denominated notes
maturing December 2018 fell one basis point to 8.49 percent
today, according to data compiled by Bloomberg. The company’s
shares rose 3.9 percent to 1,580.55 rupees as the benchmark
stock index rose to the highest in more than two years.

The last inflation-linked debt sale in India was in 1997,
when the government raised 7.05 billion rupees selling 6 percent
notes. That bond matured in 2002, the data show.